[The left’s] belief that Trump’s success is primarily a media failure has a parallel in the way conservatives have always explained their own defeats. We would have won, they insist, if only the media hadn’t been against us! If only they had told the voters just how much Barack Obama hates America, or if only they had explained what a reprobate Bill Clinton is, then of course we would have won, because the truth is so irrefutable.

It’s now becoming clear that this kind of thinking is rampant on the left as well. “I think if we had a media in this country that was really prepared to look at what the Republicans actually stood for,” Bernie Sanders said in March, “It is a fringe party. Maybe they get 5, 10 percent of the vote.” That’s a fundamental misunderstanding of how Americans think and what they believe. There are plenty of critiques you can make of how Republican policies are described in the press while still granting that they have substantial support. Conservatism isn’t going to disappear once Bernie Sanders has the opportunity for a full airing of his views, any more than Donald Trump’s support will fall to nothing once he’s “exposed.”

Here’s the truth: journalists are exposing Trump every day. How do you know about what a scam Trump University was? Because journalists told you. How do you know what a liar Trump is? Because journalists explained the difference between the truth and what he says (and yes, they need to do it more often and more quickly). Want to know more about the extent of his business shenanigans? Here’s an article on how he stiffs his contractors and workers, and here’s an article on how he bled investors for millions while mismanaging his Atlantic City casinos into bankruptcy. It’s solid investigative journalism, and it’s vitally important to the public understanding who he really is.

I like Paul Waldman. And I certainly agree with his basic critique of the premise that the media hasn’t exposed Trump himself—his utterances—sufficiently. That’s pretty much all cable news and many other media outlets have covered, apparently. And he’s clearly right thatjournalists have exposed Trump’s business frauds and business-failures-cum-profit-makers-for-only-him.

But what does that have to do with whether or not the media has covered Republican congressional policy sufficiently—which is what Sanders was talking about?

It’s not simply a matter of the New York Times or the Washington Post or the Wall Street Journal reporting on the Ryan budget or the legislation to kill Dodd-Frank or the separate legislation passed by both houses of Congress to repeal the Obama administration’s rule under Dodd-Frank making financial advisers legal fiduciaries. In a story last week titled “Obama vetoes legislation to thwart financial adviser rule,” the Associated Press summed it all up:

WASHINGTON — President Barack Obama has vetoed legislation designed to nullify Obama administration rules that will require financial professionals to put their client’s best interest first when giving advice on retirement investments.

Obama says that some firms have steered clients into products that had higher fees and lower returns, which he says costs families about $17 billion a year.

Republicans say the regulations will make it more expensive for smaller businesses to provide retirement savings plans to their employees, resulting in less advice and fewer choices for many consumers.

Under the “fiduciary rule,” advisers who charge commissions will be required to sign a promise to act in the client’s best interest and disclose information about fees and conflicts of interest.

The rule will take effect next April.

Paul Krugman writes today that Paul Ryan includes repealing that rule in his “anti-poverty plan.” Lewis Carroll ghostwrites for Ryan, something I already knew but most people don’t.

I regularly read the New York Times, the Washington Post, and blogs that cover this type of thing, so I knew of the legislation to repeal the fiduciary rule. But even I didn’t know that the legislation had actually been passed and had reached Obama’s desk.

What percentage of voters knows any of this, do you think? Was it covered on the cable stations? Was it on the front pages of any newspapers? What about the nightly network news shows that are watched mainly these days by seniors?

For that matter, did our presumptive Democratic Party nominee for president mention it? Not that I know of. Then again, she became the presumptive nominee early last week and that made her the first WOMAN presumptive major party nominee. And Donald Trump doubled down on his the-judge-is-biased-because-he’s-of-Mexican-descent tack. And had Clinton not mentioned these things again and again last week, the public never would have known.

Unless, of course, the news organizations hadn’t saturated print, internet, network and cable media with them. Which they did.

Mr. Waldman, most voters don’t know what’s in the Ryan budget. And most don’t know that financial advisers aren’t legal fiduciaries and that their business model is conflict of interest. Much less do they know that the Obama administration has used its authority under a financial-industry regulation statute passed by a Democratic Congress and signed by Obama to end that, beginning shortly after either Donald Trump or Hillary Clinton is sworn in as president.

And it’s a safe bet that few people know that the repeal of that new rule is part of Paul Ryan’s poverty, I mean anti-poverty, legislative proposal. And they don’t know what’s in Ryan’s budget plan, and they don’t know that Donald Trump’s budget plan posted since last October on his campaign’s website is the Ryan plan on steroids, and they don’t know that the Heritage Foundation folks wrote it, and they don’t know what the Heritage Foundation is, and they don’t know that Ryan says Trump has assured him that Trump will be Ryan’s puppet. And the Heritage Foundation’s. Which is redundant, I know. But they don’t.

Waldman is right that conservatism isn’t going to disappear once Bernie Sanders has the opportunity for a full airing of his views, any more than Donald Trump’s support will fall to nothing once he’s “exposed.” But Sanders is right that conservatism will disappear if the public finally learns what it actually is. Instead, mainly they’re learning how many times Trump’s latest racial or ethnic or religious or gender slur can be mentioned in a given time period. And they’ve probably stopped counting.

Which brings us to Snoopy, who has, for reasons I don’t fully understand, long been the emblem of the insurance giant MetLife.

“At the end of 2014 the regulators designated MetLife, whose business extends far beyond individual life insurance, a systemically important financial institution. Other firms faced with this designation have tried to get out by changing their business models. For example, General Electric, which had become more about finance than about manufacturing, has sold off much of its finance business. But MetLife went to court. And it has won a favorable ruling from Rosemary Collyer, a Federal District Court judge.

It was a peculiar ruling. Judge Collyer repeatedly complained that the regulators had failed to do a cost­benefit analysis, which the law doesn’t say they should do, and for good reason. Financial crises are, after all, rare but drastic events; it’s unreasonable to expect regulators to game out in advance just how likely the next crisis is, or how it might play out, before imposing prudential standards. To demand that officials quantify the unquantifiable would, in effect, establish a strong presumption against any kind of protective measures.

Of course, that’s what financial firms want. Conservatives like to pretend that the “systemically important” designation is actually a privilege, a guarantee that firms will be bailed out. Back in 2012 Mitt Romney described this part of reform as “a kiss that’s been given to New York banks” (they never miss an opportunity to sneer at this city, do they?), an “enormous boon for them.” Strange to say, however, firms are doing all they can to dodge this “boon” — and MetLife’s stock rose sharply when the ruling came down.

The federal government will appeal the MetLife ruling, but even if it wins the ruling may open the floodgates to a wave of challenges to financial reform. And that’s the sense in which Snoopy may be setting us up for future disaster.

It doesn’t have to happen. As with so much else, this year’s election is crucial. A Democrat in the White House would enforce the spirit as well as the letter of reform — and would also appoint judges sympathetic to that endeavor. A Republican, any Republican, would make every effort to undermine reform, even if he didn’t manage an explicit repeal.

Just to be clear, I’m not saying that the 2010 financial reform was enough. The next crisis might come even if it remains intact. But the odds of crisis will be a lot higher if it falls apart.

I posted here twice in the last few days about the stunningly bungled political commentary about the New York Daily News editorial board interview of Sanders, a transcript of which that paper released last Tuesday. The second of my two posts was titled:

Why did Paul Krugman and the Washington Post editorial board—both of whom know better—misrepresent that it was Sanders rather than the New York Daily News editorial board that was wrong about what Dodd-Frank provides, and about whether it would be Treasury or instead the financial institutions themselves that would determine the method of paring down?

In today’s op-ed Krugman has retracted that allegation against Sanders in his op-ed from last Friday. But what prompted the retraction—and especially the timing of it—is itself important: The federal judge’s opinion in the MetLife case was issued on March 30, the news reports about it were published mostly on March 31, and the New York Times published a critical editorial on it on Apr. 4, the day of the New York Daily News editorial board’s interview of Sanders.

A significant part of the media-criticism frenzy of Sanders for saying that he was unsure about the extent to which Dodd-Frank authorizes the federal government to determine that a financial institution is systemically so important because of its size that it must be pared down concerned questions about that opinion, by that one federal judge, issued less than a week earlier and containing some strange and unexpected—and inaccurate—statements about the relevant part of that statute.

Apparently on the ground that Sanders by then should have read the opinion and discussed it in detail with legal and finance-industry experts, the New York Daily News editorial board and most of the mainstream political analysts and pundits who opted to weigh in on it did so with the verdict that Sanders does not know much about this signature issue of his. Or maybe it was just on the ground that no politician should ever, regardless of the circumstances, say he or she does not know something, does not know enough yet about a new development or about an obscure fact, point or event, or hasn’t thought through something in particular—or maybe everything in particular—and that any politician is, according to the prevalent assembly-line political-journalist guidelines, is toast.

And Hillary Clinton, who at a televised debate two months earlier had said the very opposite of what the New York Daily News editorial board and its journalist parrots were saying about that exchange between the editorial board and Sanders, and emphasized that she had made the same point earlier in the campaign—specifically, about Dodd-Frank, what it authorizes, and how clear those provisions and their breadth are—herself parroted that take. With no indication of irony.

The first of my two posts on that interview and its aftermath was titled:

Clinton admits she failed to do her homework, and therefore misunderstood, when she stated at the February debate that Dodd-Frank already authorizes the Treasury Dept. to force too-big-to-fail banks to pare down and that therefore no further legislation authorizing it is necessary. That’s quite an admission by her, and the New York Daily News editorial board (and the Washington Post’s Chris Cillizza) should take note.

This will be my last post on that editorial board interview and the punditry’s reaction to it. Gratefully.

____

CORRECTION: The second-last paragraph in the excerpt from Krugman’s column that opens this post somehow ended up with a really big cut-and-paste error in it as I posted it there. Someone I don’t know emailed me and told me about the error. I’m very grateful. Apologies to Paul Krugman. I didn’t do that on purpose. Although next time he writes something nasty about Bernie, I might.

A notion is rapidly crystallizing among the national media that Bernie Sanders majorly bungled an interview with the editorial board of the New York Daily News.His rival, Hillary Clinton, has even sent a transcript of the interview to supporters as part of a fundraising push. A close look at that transcript, though, suggests the media may be getting worked up over nothing.

In fact, in several instances, it’s the Daily News editors who are bungling the facts in an interview designed to show that Sanders doesn’t understand the fine points of policy. In questions about breaking up big banks, the powers of the Treasury Department and drone strikes, the editors were simply wrong on details.

Take the exchange getting the most attention: Sanders’ supposed inability to describe exactly how he would break up the biggest banks. Sanders said that if the Treasury Department deemed it necessary to do so, the bank would go about unwinding itself as it best saw fit to get to a size that the administration considered no longer a systemic risk to the economy. Sanders said this could be done with new legislation, or through administrative authority under Dodd-Frank.

As the interview went on, though, it began to appear that the Daily News editors didn’t understand the difference between the Treasury Department and the Federal Reserve. Follow in the transcript how Sanders kept referring to the authority of the administration and the Treasury Department through Dodd-Frank, known as Wall Street reform, while the Daily News editors shifted to the Fed.

The subtitle of Grim’s article is “The interview exposes as much about the media as it does about Bernie Sanders.” And indeed it does. It exposes this particular editorials board as profoundly ignorant about virtually every subject the interview addressed—not just the specifics of Dodd-Frank but (astonishingly) also about this country’s decades-long position on Israel’s policy regarding new settlements in occupied Palestinian territories and also on the general nature and legal effect of treaties and United Nations resolutions pertaining to them, and a few other things.

It also exposes the board members as high-school-amateurish, not just as journalists but as, well, people. Not just in the adolescent questions they asked but also in their mysterious inability to follow their own questions, which on the banking issue they were unable to recall from one question to the next whether they were asking about current law (Dodd-Frank) or instead about possible new legislation. Not to mention, although Grim did, their failure to distinguish between the role of the Fed and the role of the Treasury Dept. on this issue under Dodd-Frank.

And it exposes a slew of other mainstream-media political analysts as just ridiculous. But particularly, it exposes the Washington Post’s Chris Cillizza, the chemist who started the crystallization shortly after the Daily News released a transcript of the interview, for what he is: a robot, or maybe a computer, whose algorithms are programmed to forecast specific public reactions to certain words, phrases or clauses uttered by politicians in interviews, debates or off-hand responses to a reporter or to a voter at, say, a town hall-type campaign appearance. “I don’t know the answer to that,” or “I haven’t thought much about it,” or “the banks should be allowed to determine what means they will use to pare down in accord with banking-regulation edict” or “I can’t provide the specific citation to the fraud statute in the federal Criminal Code” are definite career destroyers.* Or at least presidential candidacy destroyers.

And since Cillizza is highly regarded among mainstream political analysts who themselves lack those algorithms and must get by with baas, Clinton had a ball she thought she could pick up and run with. So, interviewed yesterday morning on “Morning Joe” yesterday, and asked about Sanders’ responses to the Daily News editorial board members’ too-big-to-fail questions, she had a script prepared not by her consultants but by Cillizza, et al., that included this:

I think he hadn’t done his homework and he’d been talking for more than a year about doing things that he obviously hadn’t really studied or understood, and that does raise a lot of questions.

She went on to question whether Sanders was qualified to be president.

So the Daily News interview debacle serves handily also to highlight what’s wrong with Clinton. Characteristically, she echoed a statement by members of that editorial board that she knew was false and also alluded to Sanders’ befuddlement (incredulousness, really) at other misstatements of fact by the editorial board members—it hasn’t been U.S. policy, fordecades, to insist that as part of a two-state solution brokered by the White House or State Dept., Israel must withdraw its West Bank settlements on certain specific lands?—as disqualifying Sanders as a presidential candidate.

Grim’s piece links to the RealClear Politics headline from February 4, posted shortly after the February debate, headlined “Clinton Agrees With Sanders: ‘We Now Have Power Under Dodd-­Frank To Break Up Big Banks’”. The article links to videotape. Clinton said, “We now have power under the Dodd-Frank legislation to break up banks. And I’ve said I will use that power if they pose a systemic risk. ”

So Clinton failed to do her homework, either before that debate in February or before that “Morning Joe” interview yesterday. And that does raise a lot of questions. A lot of questions. Which presumably the New York Daily News editorial board will seek answers to when they interview her.

Discussing climate change on Monday, Mrs. Clinton cited her “very vigorous record” on the subject. Then she proceeded to express bafflement about a stance she said her opponent had taken.

“I couldn’t believe it when Senator Sanders opposed the Paris agreement — the best chance we have to actually reverse climate change and deal with the consequences,” Mrs. Clinton said in an interview on “Capital Tonight,” an upstate New York cable news show.

The Paris agreement, reached in December, commits nearly every nation to take action to combat climate change. Given that Mr. Sanders has made climate change a major issue in his campaign, his supposed opposition would indeed seem odd.

But Mrs. Clinton’s characterization was misleading.

It is true that Mr. Sanders did not warmly embrace the Paris agreement. But his lack of enthusiasm was for the opposite reason that Mrs. Clinton suggested.

“While this is a step forward, it goes nowhere near far enough,” Mr. Sanders said in a statement in December. “The planet is in crisis. We need bold action in the very near future and this does not provide that.”

— Thomas Kaplan

So Clinton doesn’t believe her own hallucination. She just wants Democratic primary voters to.

Then again, maybe she really can’t distinguish between a lament by someone that something doesn’t go far enough or isn’t strong enough and one that objects that the thing goes too far or is too strong. This seems to be a recurring type of confusion for her. So she may not be faking it after all. Maybe she really can’t tell the difference.

As for the second of those three questions—Is he a cold-hearted conservative or a moderate Republican from Massachusetts?—I think there’s a third possibility. I think he’s George Orwell.

Or, rather, that he’s channeling George Orwell. Not Orwell, the person. Orwell, the writer.

Orwell, of course, is most famous for his book 1984, in which politicians and government officials say exactly the opposite of what they mean. Thus, the term “Orwellian,” which is not limited to politicians’ statements, but which refers to the use of common language terms that have a fixed meaning, and using them to suggest exactly the opposite of what those terms actually mean—and exactly the opposite of what the speaker does mean.

Up means down, left means right, black means white. You get the picture. Some people will think that when you say “up,” you mean “up.” Others will understand that when you say “up,” you mean “down.” It’s sophistry, con artistry.

It’s also a key tactic that dictators use to gain or keep power. Hitler, of course, used it routinely. But so did Mao Tse-tung. In fact, another word for “Orwellian” was, during the Mao era, “Mao Speak.” You just change the definition of common words to mean exactly the opposite of what the words have meant. That way, you can continue to claim that you’re doing something in particular, or will do something in particular, when you’re actually doing or planning to do the opposite.

In democracies, when politicians do that, it has another synonym: lie. Or at least that’s been so until now. On Wednesday night, Romney changed the meaning of many words and phrases so that they mean the opposite of what they have meant. Not the least are the words “win” and “debate,” at least as the former normally is applied to the latter, although it was largely the news media that redefined “win,” and of course Jim Lehrer helped with the redefinition of “debate.”

But another word that underwent a quick transition Wednesday night from its normal meaning to the opposite of it is “plan.” As in, he has a plan to cover preexisting medical conditions. The word “plan” normally means, y’know, a recommendation or intention to change something from its current status. The phrase “a plan to cover preexisting medical conditions” normally means a requirement that insurance companies provide medical insurance to people who have preexisting medical conditions such as, say, multiple sclerosis or breast cancer, beyond what federal law already requires. That is, beyond the status quo.

Which is that people who have, say, multiple sclerosis or a malignant breast tumor and have had no healthcare insurance within the previous three months can get treated at the emergency room, and then maybe file for bankruptcy if the hospital actually does provide, um, treatment for these medical problems. Then again, Romney had redefined the word “treatment” even before the Wednesday debate, so I guess we now have to understand the phrase “medical treatment” to mean something like, “But you have no insurance and you need the sort of medical procedure that isn’t done in emergency rooms.” Romney already had redefined the word “plan” to mean promised goals rather than the specific, credible means of achieving them.

But that redefinition had applied only to his economic plan—a plan that he said on Wednesday night might not work, and which—although it escaped the punditry—he seemed to be admitting that he (the successful businessman!) had devised without any actual economic basis for thinking that the revenue/tax-deduction ends could meet as designed. But this second redefinition of the word “plan” was something else entirely, because by saying that he has a plan to provide healthcare insurance to people who currently are denied it because of a preexisting medical condition, he was telling them that he plans to something specific that he plans not to do. And it concerns some truly fundamental things, in some cases life or death, in others financial security or instead financial devastation.

What kind of person stands on a stage speaking to 67 million people, and just plain lies about something of that sort? Dare I say it—the kind of person who speaks derisively about 47 percent of Americans, none of whom are Bain investors, have overseas bank accounts, hire PriceWaterhouseCoopers to tally their tax returns, and have their IRA accounts in the Cayman Islands. Nor contribute to Republican PACs or attend Romney fundraisers in Boca Raton. Or anywhere else.

Maureen Dowd, in her New York Times column today, uses humor to run through many, but by no means all (she’s only allowed a limited number of words per column, after all), of Romney’s bald debate-“winning” lies. And she includes the preexisting-medical-conditions one. But I think it’s Paul Krugman who, in his Times column on Friday, titled “Romney’s Sick Joke,” best highlights that this particular lie is particularly brazen and particularly pernicious. And Ezra Klein points out that Romney’s mendacity about his plan for healthcare coverage—and in this context it is indeed a plan, as that word is defined the old-fashioned way—runs even deeper.

It’s been said, accurately, many, many times now that this election will determine the basic nature of American government. But until now, that’s meant budgetary, taxing and regulatory policy. It now means something even more fundamental, in addition: Whether or not we allow a redefinition of the word “democracy.” Romney asks us to believe in America. It turns out that he means an America of the sort that George Orwell feared.

Or at least one run by a used car salesman. Read the fine print on that contract. And on that separate warranty you’ll be charged for.

ROMNEY: Look, the revenue I get is by more people working, getting higher pay, paying more taxes. That’s how we get growth and how we balance the budget. But the idea of taxing people more, putting more people out of work, you’ll never get there. You’ll never balance the budget by raising taxes.

Spain — Spain spends 42 percent of their total economy on government. We’re now spending 42 percent of our economy on government. I don’t want to go down the path to Spain. I want to go down the path of growth that puts Americans to work with more money coming in because they’re working.

LEHRER: But — but Mr. President, you’re saying in order to — to get the job done, it’s got to be balanced. You’ve got to have…

Romney doesn’t want to go down the path to Spain? Oh? Well, since, actually, the percent of Spain’s total economy that they spend on government has nothing at all to do with Spain’s situation now, and instead has everythingto do with the fact that they had a huge, huge housing bubble, worse even than ours, and since their housing bubble is—like ours—the main cause of their economic problems, and since Romney wants to repeal the Dodd-Frank Wall Street and Mortgage-lending regulations and replace them with regulations that favor Wall Street … then, yes, Romney does want to go down the path of Spain.

Or at least down the path we took during our deregulation juggernaut.

OK, here’s the thing: Romney and his campaign aides recognized that that debate forum would present a perfect opportunity for him to just rattle off statements without any challenge. Just a steady stream of nonsense, without any real risk of being confronted with actual challenges to any of it. They knew, as I did, that Lehrer—I still remember his nauseating role in the first Bush/Gore debate in 2000—does nothing but ask the candidates to state their positions on whatever. Open-ended questions in which each one is supposed to state his policy proposal on, say, taxes, or “jobs.” There’s no actual questioning about the proposal. None. None.

So, Romney gets to state, free and clear, a completely false inference of fact about the cause of Spain’s economic problems. And he gets to say, free and clear:

Look, the revenue I get is by more people working, getting higher pay, paying more taxes. That’s how we get growth and how we balance the budget. But the idea of taxing people more, putting more people out of work, you’ll never get there. You’ll never balance the budget by raising taxes.

Really? You’ll never balance the budget by raising taxes? Oh? Didn’t we do exactly that during the Clinton administration?

And, the revenue he gets is by more people working, getting higher pay, paying more taxes? Oh? Through the same policies as George W. Bush did? Really?

And so forth.

Like, that Romney is going to cut tax rates across the board by 20%. But he’s not going to lower tax revenue from the wealthy at all. And so forth.

What Obama needs to do—really, really needs to do—is put up a series of ads juxtaposing Romney’s earlier statements with his gibberish from last night. (I strongly urge using a clip from Romney’s speech to the Detroit Economic Club in February, and a similar speech that same week in Arizona; Michigan and Arizona had their primaries on the same Tuesday.) But rather than just suggesting that Romney is a slippery liar who’s trying to trick voters into putting into office a team that would put in place drastic, basic changes that he knows a substantial majority of the public doesn’t want, Obama should pretend that Romney just doesn’t know the facts and can’t do simple math. He is, in other words, not very smart, or at least not very well-informed.

The public, of course, will recognize that Romney’s a sleaze bucket. But Obama can just say, for example, that if Romney doesn’t know that during the Clinton years, we had a balanced budget, he’s too ill-informed to be president.

And, about that Spain thing: The final debate will be about foreign policy. Which, Obama should point out, requires some knowledge of such things as what actuallycaused Spain’s economy to crash. And then he should educate the public about it. He can do that in two or three sentences of medium length. If he wants to see how it’s done, he can read any one of several Paul Krugman columns in which Krugman did exactly that. It’s not rocket science. It’s not even economic science. It’s simple, established fact. Of exactly the sort that not long ago Romney’s pollster said the Romney campaign wouldn’t trouble itself about, and that it would instead continue to make up its own facts.

Speaking of good way for the Obama campaign to get a message across in an ad ….

The bottom line: Obama can easily turn Romney’s performance last night into a plus.

GOP wants to repeal Dodd-Frank: instead they should listen to Nassim Taleb

Nassim Taleb, the author of the book on long-tail events, suggests in a Nov. 6, 2011 op-ed in the New York Times that “it is only a matter of time before private risktaking leads to another giant bailout like the ones the United States was forced to provide in 2008.”

That’s pretty strong language, and should be cause for worry among those GOP debaters who have been in a pissing contest over how much legislation they can suggest for repeal, like Dodd-Frank, health care reform, and environmental protection. Instead of defending big banks, the GOP should start thinking about how to break them up. Instead of suggesting that we need to repeal Dodd-Frank and end regulation of banks, Taleb says we do need regulation but can’t depend on it alone: “Supervision, regulation, and other forms of monitoring are necessary, but insufficient.”

And instead of defending risk-taking bankers as innovators and entrepreneurs, Congress should be considering measures to undo the incentives for risk taking. Taleb says–End Bonuses for Bankers.

[I]t’s time for a fundamental reform: Any person who works for a company that, regardless of its current financial health, would require a taxpayer-financed bailout if it failed, should not get a bonus, ever. In fact, all pay at systemically important financial institutions–big banks, but also some insurance companies and even huge hedge funds–should be strictly regulated.

***

Bonuses are particularly dangerous because they invite bankers to game the system by hiding the risks of rare and hard-to-predict but consequential blow-ups, which I have called ‘black swan’ events.

Seems like sound advice. Bonuses encourage risktaking, and risktaking encourages breakdowns of TBTF banks. Breakdowns lead to taxpayer bailouts. To break the chain, deny the bonuses.

The asymmetric nature of the bonus (an incentive for success without a corresponding disincentive for failure) causes hidden risks to accmumlate in the financial system and become a catalyst for disaster. This violates the fundamental rules of capitalism: Adam Smith himself was wary of the effect of limiting liability, a bedrock principle of the modern corporation.

Here Taleb touches on a factor in the expanding risk of our economy–and the expanding immunity of the manager class from the risk they cause. Corporations provide limited liability to their owners. And innovations over the last few decades have expanded limited liability to almost all investors even in pass-through entities that pay no entity-level tax, through the limited liability company and the limited liability partnerships. That is one of the reasons I have argued for Congress to enact legislation to restrain the availability of tax-free mergers and reorganizations. The combination of easily attained limited liability plus easily attained consolidation of entities has been a factor in the growth of the corporatist state.

Taleb has a good point about the incidence of bonuses in the US market system as well.

We trust military and homeland secrutiy personnel with our lives, yet we don’t give them lavish bonuses. They get promotions and the honor of a job well done if they succeed, and the severe disincentive of shame if they fail. For bankers, it is the opposite: a bonus if they make short-term profits and a bailout if they go bust.

Eliminating bonuses would make banking boring again, like it was before the repeal of the Glass-Steagall Act. Boring, in this case, is good. Congress should consider what kind of legislation could be designed to make bonuses in banking less likely, through tax disincentives or other means.